Rights Issue
A fundraising mechanism where a company offers existing shareholders the right to purchase additional shares at a discounted price, proportional to their current holding, before the offer opens to new investors.
Definition
A rights issue is a corporate action in which a listed company raises fresh capital by offering its existing shareholders the right — but not the obligation — to subscribe to new shares at a price typically set at a discount to the prevailing market price. The entitlement is proportional to the shareholder's existing holding: for example, a 1:4 rights issue means one new share for every four currently held. Rights entitlements on NSE are themselves tradable instruments for a brief window, allowing shareholders who do not wish to subscribe to sell their rights in the secondary market. A rights issue differs from a bonus issue in that shareholders must pay for the new shares rather than receiving them free.
Why it matters
A rights issue dilutes the existing share count, which mechanically reduces earnings per share and book value per share even before considering how the raised capital is deployed. On the ex-rights date, the stock's theoretical ex-rights price (TERP) falls below the pre-announcement price, reflecting the weighted average of the old shares and the newly issued discount shares. For F&O traders, NSE adjusts derivatives contracts on the ex-date to neutralise this price drop — strike prices and lot sizes are revised so that open positions are not artificially penalised. The subscription price set by the company signals management's confidence: a deeply discounted rights issue may indicate urgency to raise capital, while a modest discount suggests stronger balance-sheet positioning. Monitoring changes in open interest around the announcement and ex-date often reveals how institutional participants are repositioning ahead of the adjustment.
How it works
The board announces the rights issue ratio, subscription price, record date, and issue open/close dates. Shareholders on the record date receive rights entitlements credited to their demat accounts. They may: (1) subscribe in full by paying the subscription price; (2) renounce and sell the rights entitlement on NSE during the trading window; or (3) let the rights lapse, in which case they suffer dilution without receiving any benefit. The company allots new shares after the issue closes, and the shares are credited to demat accounts and listed on the exchange. If the rights issue meets NSE's adjustment criteria, the exchange issues a circular specifying the revised strike prices and lot sizes for all open F&O contracts before the ex-date.
Example
Suppose a hypothetical company, ABC Ltd, is trading at ₹500 on NSE. It announces a 1:2 rights issue at a subscription price of ₹400. The theoretical ex-rights price is calculated as: TERP = (2 × ₹500 + 1 × ₹400) / 3 = ₹1,400 / 3 ≈ ₹466.67. A shareholder holding 200 shares is entitled to subscribe to 100 new shares at ₹400 each, investing ₹40,000. After subscription, they hold 300 shares with a blended cost near ₹466.67 per share. If they choose not to subscribe, they can sell the 100 rights entitlements in the market; the intrinsic value of each right is approximately ₹500 − ₹466.67 = ₹33.33, though actual trading price may differ based on demand.
Track corporate actions and their F&O adjustments
TradePulse surfaces live option chain data so you can monitor open interest shifts around rights issue ex-dates before they move the market.